SEC charges two former KPMG auditors for improper professional conduct

The Securities and Exchange Commission (SEC) has suspended two former KPMG auditors from practicing before the SEC in connection with settled charges against the two for improper professional conduct during an audit of a not-for-profit college

The SEC previously charged the college’s former controller with fraud in connection with the college’s fiscal year 2015 financial statements.

According to the SEC’s orders, former KPMG partner Christopher Stanley approved, and former KPMG senior manager Jennifer Stewart authorised, the issuance of an unmodified audit opinion on the College of New Rochelle’s fiscal year 2015 financial statements, despite not having completed critical audit steps.

As described in the orders, KPMG’s work on the audit had stalled because the college’s former controller had provided the audit team with inaccurate, incomplete, and contradictory information.

In November 2015, the former controller and the college’s president informed Stanley and Stewart that the college needed KPMG to issue the audit report. Despite the existence of numerous outstanding open items and unanswered questions, Stanley and Stewart decided to issue the audit report.

The SEC’s orders find that Stanley and Stewart violated Generally Accepted Auditing Standards by, among other things, failing to obtain sufficient appropriate audit evidence, properly prepare audit documentation, properly examine journal entries, adequately assess audit risk, and exercise due professional care and professional scepticism. 

The college’s fiscal year 2015 audited financial statements, which were submitted to the Municipal Securities Rulemaking Board in line with the college’s obligation to provide continuing disclosure to investors, fraudulently overstated the college’s net assets by $33.8m (£24m).

‘Auditors of municipal issuers are key gatekeepers in upholding the reliability and integrity of financial information provided to investors in municipal bonds,’ said Matthew S Jacques, chief accountant of the SEC Enforcement Division.  ‘It is critical that they exercise professional care and scepticism.

‘Audited financial statements for municipal issuers are submitted to the MSRB pursuant to the continuing disclosure undertakings required by the Exchange Act,’ said LeeAnn Ghazil Gaunt, chief of the SEC Enforcement Division’s public finance abuse unit. ‘We will investigate auditors’ conduct in municipal audits and, where appropriate, hold them accountable when they act improperly.’

Without admitting or denying the findings, Stanley and Stewart each agreed to be suspended from appearing or practicing before the SEC as an accountant with the right to apply for reinstatement after three years and one year, respectively. 

They both also agreed not to serve as the engagement manager, engagement partner, or engagement quality control reviewer in connection with any audit expected to be posted in the MSRB’s Electronic Municipal Market Access system until they are reinstated by the SEC.

Sara White |Editor, Accountancy Daily, published by Croner-i

Sara White is editor of Accountancy Daily, published by Croner-i, and in...

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